Expert Analysis of Today's Market

• Trading mixed on Monday, the dollar was higher against the yen and Canadian dollar but lower against the euro and sterling. The pound was supported by the Bank of England’s quarterly bulletin, which warned public inflation expectations in the UK may not decline in line with falls in inflation data and positive M&A rumors. The USD/JPY hit a fresh 4-1/2-year high and the EUR/JPY hit a record high. The trade was dominated by continued interests in carry-trades.


• The EUR/USD rose above the 1.34 handle for the first time in 10 days, as market players continued to scale back US interest rate expectations after Friday’s weaker-than-forecast core CPI data. The pair is testing the resistance in the 1.3420 area. If this is broken, the pair will move to the 1.36 handle. However, we expect more sideways movement before the downtrend continues.

Financial and Economic News and Comments

US & Canada

• The National Association of Home Builders/Wells Fargo index of homebuilder’s sentiment declined to 28 in June from 30 in May, the NAHB said. This was lower than expected and the lowest since February 1991, indicating most homebuilders saw conditions as poor. The NAHB noted serious impact of tighter lending standards on the housing market.

Europe

• The Swiss National Bank may raise its key interest rate due to the weakness of the Swiss franc, SNB Chairman Jean-Pierre Roth said.


• UK house prices gains moderated in June. London asking prices increased 0.7% m/m to £387,898 ($764,000), half the pace of May, as values fell in 17 of the city’s 32 districts. London asking prices rose 23.1% y/y this month, the weakest pace since March. Across the UK, asking prices rose an annual 13.2% y/y in June to an average £239,317, Rightmove Plc said.


• Price risks in the EMU remain on the upside, and any additional tightening of monetary policy that may be needed to check them would not pose a threat to activity, European Central Bank Governing Council member Axel Weber said.

Asia-Pacific

• The New Zealand dollar stayed firm despite suspected central bank intervention. A spokeswoman at the Reserve Bank of New Zealand declined to comment on whether the RBNZ intervened on Monday, but market participants said the RBNZ sold New Zealand dollars.


• The Japanese government left its assessment of the Japanese economy unchanged, saying the economy is recovering and corporate profits in Japan are improving although production remains weak. “The economy is recovering, despite weakness in industrial production in some sectors,” the Cabinet Office said in its monthly economic report.


• China’s key stock index rose to a record, having taken less than two weeks to rebound from a rout that erased more than $400 billion of market values.

FX Strategy Update